Load-based mutual funds offer a good chance for brokers to make extra money. This amount can be on top of what they already charge their clients and is part of the mutual fund itself.
Load funds can be a good pick for brokers and financial advisors as they can get a fee for their help. Yet, investors should know about the costs linked with load funds and think carefully if the perks of having a broker or advisor are worth the extra fees and costs. Investors need to look into and compare the costs and results of load and no-load mutual funds before deciding where to invest.
In this article, we look into how the load is worked out and what kind of risk checks an investor should use when picking load or no-load mutual funds to put their money into.
What is a load fund, and how does it work?
Mutual fund agents take a fee to make money for their work. When investors buy or sell bits in a load fund, they pay a cost, a part of the money they invest. This cost goes to the agent or money guide who helps the investor with the buy or sell. This cost is on top of the running fees and other costs the mutual fund asks for.
A load fund is a mutual fund that asks for a fee, known as a “load,” when buying or selling bits. Agents or advisors sell load funds and get some of the load as pay for their help. Load funds have two kinds: front-end load funds and back-end load funds.
Reasons to select a load fund
Several investors pick load-based mutual funds, even though they can cost more. For those new to investing without the time or skill to pick single stocks or bonds, working with financial advisers or brokers might seem better.
Brokers and financial advisers might push load mutual funds because they get a fee for selling them. While this could make one think twice, investors who trust their adviser and have a good bond with them may not mind paying the fee for their help.
Some mutual fund firms only have load funds, which might need a bigger first spend or limit who can put money in them. Investors keen on these funds may be okay with paying the fee to get in.
Load funds might also save money in other ways. Even though load mutual funds charge a fee to buy or sell shares, they often have smaller ongoing charges than no-load funds. This could mean paying less in total over a long time.
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What is a no-load fund, and how does it work?
A no-load fund is a mutual fund that doesn't ask for a fee or sales cost when you buy or sell units. Also, some funds charge an exit load depending on the time period that the investor has held onto the instrument. If an investor meets the time criteria, they may not be charged any exit load. No-load funds might still ask for running fees and other costs, but fees are usually less than load funds.
Reasons to select a no-load fund
No-load funds are seen as cheaper options compared to load funds. People who like to look after their investments and don’t want to pay extra fees to a broker or advisor would go for no-load funds. But, it’s key for investors to look closely at the fees and how well different mutual funds do before putting their money in.
When you put your money into a no-load fund, you normally buy shares at the fund’s net asset value (NAV), which is the total value of the fund’s assets divided by the number of shares out there. You can then sell your shares at the NAV, which might be higher or lower than the price you paid, based on the mutual fund's performance.
Key takeaways
- A load fund is a mutual fund that asks for a fee, known as a “load,” when buying or selling units
- A no-load fund is a mutual fund that doesn't ask for a fee or sales cost when you buy or sell units
- Even though load mutual funds charge a fee to buy or sell shares, they often have smaller ongoing charges than no-load funds
Conclusion
The load or sales charge can cut into an investor’s profit and make investing in the mutual fund more expensive. Investors should think hard about the load and other fees when looking at load vs. no-load mutual funds.
